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Revisiting Wage, Earnings, and Hours Profiles

Author

Listed:
  • Giulio Zanella

    (University of Bologna)

  • Peter Rupert

    (UCSB)

Abstract

This paper consists of two parts. In the first part we use the PSID (which is now long enough to allow the observation of the entire working life) to document empirical life cycle profiles (wage, earnings, hours) of a cohort of workers followed from when they enter the labor market in 1967 to when they retire in 2006. We find an empirical pattern that is inconsistent with the human capital model, where the three profiles are hump-shaped. In particular, in this model the wage and hours profiles necessarily have the same shape if human capital depreciates and the real interest rate is not too high relative to the subjective discount rate. We find instead that in our data the wage profile does not decline while hours per worker drop sharply beginning at age 50, when many workers seem to start a smooth transition into retirement by working progressively fewer hours. The decline in earnings is therefore driven by labor supply. This pattern is confirmed by the CPS. We show that a model in which the value of leisure/disutility of work starts growing after age 50 reconciles theory and data. In the second part we study an OLG model that incorporates two main forces that may be driving such shift in preferences: health deterioration and appearance of grandchildren. The model produces conditions under which unhealthy workers and grandparents reduce labor supply. Under certain conditions the average effects of such shocks can be estimated in a straightforward way without having to resort to full structural estimation. We illustrate such identification conditions and show that while the health channel has an insignificant effect, intergenerational transfers of time (grandparenting) play a major role in reducing labor supply along the intensive margin towards the end of the working life.

Suggested Citation

  • Giulio Zanella & Peter Rupert, 2010. "Revisiting Wage, Earnings, and Hours Profiles," 2010 Meeting Papers 1158, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:1158
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    2. Emrehan Aktug & Tolga Umut Kuzubas & Orhan Torul, 2017. "An Investigation of Labor Income Profiles in Turkey," Working Papers 2017/04, Bogazici University, Department of Economics.
    3. Rupert, Peter & Zanella, Giulio, 2015. "Revisiting wage, earnings, and hours profiles," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 114-130.
    4. Yum, Minchul, 2016. "Parental time investment and intergenerational mobility," Working Papers 16-06, University of Mannheim, Department of Economics.
    5. Kadija Charni & Stephen Bazen, 2017. "Do earnings really decline for older workers?," International Journal of Manpower, Emerald Group Publishing, vol. 38(1), pages 4-24, April.
    6. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.
    7. Joanna Tyrowicz & Lucas van der Velde & Irene van Staveren, 2017. "Identifying Age Penalty in Women's Wages: New Method and Evidence from Germany 1984-2014," SOEPpapers on Multidisciplinary Panel Data Research 956, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Wilson, Nicholas, 2017. "The World’s Oldest Profession? Employment-Age Profiles from the Transactional Sex Market," GLO Discussion Paper Series 77, Global Labor Organization (GLO).
    9. Alexander Ludwig & Dirk Krueger, 2015. "Optimal Capital and Progressive Labor Income Taxation with Endogenous Schooling Decisions and Intergenerational Transfers," 2015 Meeting Papers 334, Society for Economic Dynamics.
    10. repec:eee:eecrev:v:101:y:2018:i:c:p:512-527 is not listed on IDEAS
    11. Alexander Ludwig & Dirk Krueger, 2010. "Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation," 2010 Meeting Papers 388, Society for Economic Dynamics.
    12. Freddy Heylen & Pieter Van Rymenant & Brecht Boone & Tim Buyse, 2016. "On The Possibility And Driving Forces Of Secular Stagnation - A General Equilibrium Analysis Applied To Belgium -," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 16/919, Ghent University, Faculty of Economics and Business Administration.
    13. Jose Mustre-del-Rio, 2015. "Wealth and Labor Supply Heterogeneity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 619-634, July.
    14. Chirok Han & Goeun Lee, 2017. "Efficient Estimation of Linear Panel Data Models with Sample Selection and Fixed Effects," Discussion Paper Series 1707, Institute of Economic Research, Korea University.
    15. Barry T. Hirsch & John V. Winters, 2014. "An Anatomy Of Racial and Ethnic Trends in Male Earnings in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 930-947, December.
    16. Hendricks, Lutz, 2016. "Accounting for changing returns to experience," CFS Working Paper Series 558, Center for Financial Studies (CFS).
    17. John Ameriks & Joseph S. Briggs & Andrew Caplin & Minjoon Lee & Matthew D. Shapiro & Christopher Tonetti, 2017. "Older Americans Would Work Longer If Jobs Were Flexible," NBER Working Papers 24008, National Bureau of Economic Research, Inc.
    18. repec:eee:hapoch:v1_457 is not listed on IDEAS
    19. Duo Qin & Sophie van H¸llen & Qing-Chao Wang, 2014. "What Happens to Wage Elasticities When We Strip Playometrics? Revisiting Married Women Labour Supply Model," Working Papers 190, Department of Economics, SOAS, University of London, UK.
    20. Minchul Yum, 2015. "Parental Time Investment and Human Capital Formation: A Quantitative Analysis of Intergenerational Mobility," 2015 Meeting Papers 996, Society for Economic Dynamics.
    21. P. Rupert & G. Zanella, 2014. "Grandchildren and Their Grandparents’ Labor Supply," Working Papers wp937, Dipartimento Scienze Economiche, Universita' di Bologna.
    22. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-55, October.
    23. Keller, Elisa, 2014. "The slowdown in American educational attainment," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 252-270.
    24. Christian vom Lehn & Eric Fisher & Aspen Gorry, 2018. "Male Labor Supply and Generational Fiscal Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 121-149, April.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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